Democrat-led Delaware House kills tax relief bill

A GOP proposal offering income tax relief to all Delaware residents failed to clear a Democrat-led committee in the state House on Tuesday.

The bill failed to win enough votes in the House Revenue and Finance Committee to be sent to the full House for consideration.

The measure, sponsored by House Minority Leader Michael Ramone of Newark, raises the minimum income subject to state income tax from $2,000 to $2,500. It also replaces the current six personal income tax brackets with three new brackets.

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The current tax brackets range from 2.2% for taxable income of $5,000 or less to 6.6% for taxable income of $60,000 or more. Republicans are proposing tax brackets of 2% for income of $10,000 or less, 4% for income between $10,001 and $25,000, and 5% for income over $25,000.

Under the proposal, a person with taxable income of $25,000 would see tax savings of 25%, while one with income of $50,000 would see a tax cut of 16%. A person with $1 million in taxable income would pay 24% less than under the current structure.

Analysts estimate the proposal would cost the state general fund about $190 million in its first year of implementation, and $479 million in the following full fiscal year.

"What concerns me is the revenue loss…. What happens when we lose this money?" said Rep. Kendra Johnson, a New Castle Democrat.

Ramone explained that the proposal could provide an economic stimulus, benefitting those most in need while helping offset the tax loss to the state. He urged the panel to release the bill, but acknowledged it will have to be modified to have a chance to pass the legislature.

Ramone also said he would not push for a floor vote unless revenue forecasts indicate that sufficient funds are available. "It’s just a starting point," he said, noting that the state has seen substantial revenue surpluses in recent years, largely due to an influx of federal funds.

Rebecca Goldsmith, deputy finance secretary for Gov. John Carney, said the bill comes with "a high cost," noting that personal income tax is the largest single revenue source for the general fund.

"Reductions to this tax without an alternative revenue offset could leave the state with significant budget shortfalls now and into the foreseeable future," she said.

Republicans also have introduced a bill requiring state income tax brackets to be adjusted annually for inflation, by an amount equal to the change in the Consumer Price Index over the preceding year.

The measure, which is opposed by the Carney administration, is intended to protect taxpayers from "bracket creep," when cost-of-living increases to wages and salaries push people into higher tax brackets, with no increase in real income.

"If it’s just inflation causing that, then you’re not making anything," said bill sponsor Rep. Rich Collins of Millsboro. "All that extra money is just the inflation, and you get to pay taxes on it."

Analysts currently estimate that the proposal would cost the general fund about $30 million in fiscal years 2025 and 2026, and about $38 million fiscal 2027.

The committee deferred further discussion and action on Collins’ bill until it reconvenes in March.